Top 5 Cities In the Indian Startup Ecosystem

Indian startup ecosystem has really taken off and come into its own—driven by factors such as massive funding, consolidation activities, evolving technology and a burgeoning domestic market.

The numbers are telling—from 3,100 startups in 2014 to a projection of more than 11,500 by 2020, this is certainly not a passing trend. It’s a revolution. And it’s going to change the way the markets are working today in India. With 4200-4400 startups, India is marginally trailing behind UK that has over 4800-5000 technology driven startups. US, however, leads the pack with roughly 47,000 technology driven startups.

The geographic advantage and the breakneck pace at which entrepreneurship is exploding in India, there’s only so much innovation and entrepreneurship that can happen on a land mass, that is UK, which is as big as the North Indian state of Uttar Pradesh, which can put it at the second spot in a year or two.

The US is more than triple the size of India and an altogether a different world for startups. Nonetheless, like the US, India’s growing metropolises beyond Delhi/NCR, Bengaluru and Mumbai that include more than 20 upcoming metros and Tier 1 destinations are adding fuel to its fiery startup space.

Ask any aspiring entrepreneur where he/she will like to launch his/her dream startup, and more often than not you will hear the word Bengaluru rolling off their tongues in a second. It is not just for being the hot-bed for tech innovations, Bengaluru is a great fusion of hi-quality talent, cheaper real estate, better access to capital with a high density of investors and mentorship support, a conducive government that announced initiatives like building one of the Asia’s biggest startup warehouse, an Internet of Things Lab, etc., that attract companies from cities like Delhi and Mumbai and certainly across India.

US-based Compass ranked Bangalore 15th in a global Startup Ecosystem Ranking for 2015. The Compass is a provider of automated reporting and benchmarking software. As per the ranking, the city is among 5 ecosystems that made the biggest leaps over the last two years. The others are New York, Austin, Singapore, and Chicago.

Bangalore already hosts Myntra, Flipkart, BigBasket, ZoomCar, HackerEarth & many more. And, on the side successful start-ups like FreeCharge,Ola, Quikr and InMobi had shifted their base to Bengaluru in search for good talent and low real estate cost. However, talent in Bengaluru is more expensive than Pune, Hyderabad and Chennai on an average, while the cost of living is arguably a little cheaper.

When asked about the top startup hub in India, Dev Khare, Managing Director, Lightspeed India says “In terms of deal volume, Bangalore is the startup hub. Next is NCR. Then it’s other cities like Mumbai, Chennai, Pune.”

No other city comes closer to Gurgaon/Delhi/Noida when it comes to knowing and understanding how to do business. The region has always been a traders’ hub and a crucial source of procuring raw materials.

Nonetheless, region’s real growth, more than the Delhi itself, has come from its satellite towns of Gurgaon and Noida, attracting companies and entrepreneurs because of their lower rental costs and an enormous consumer base that offers huge opportunities for service businesses.

Gurgaon/Delhi/Noida, which already hosts some of the largest e-commerce companies like Snapdeal, Paytm and Grofers, has seen 52 e-commerce startups raising capital since 2011. NCR also host major VCs like Sequoia Capital, Peesh Venture Capital, Helion Venture Partners, LightSpeed Venture Partners, SAIF Partners, and many more.

Both Gurgaon/Delhi/Noida and Bengaluru have turned out to be the breeding grounds for startups providing web-based services across industries from finance to healthcare, logistics, cab-aggregation, food & grocery delivery, and real estate.

In context to Gurgaon and Noida emerging as startup hubs in the country Peesh Chopra, Managing Partner, Peesh Venture Capital says “India is a startup superpower and now offers entrepreneurs with more choices of cities with thriving startup ecosystems to establish their startups.” . He further added “I envision we will even see Tier 2 and Tier 3 cities emerge as major tech startup hubs in the next few years and entrepreneurs from the U.S. and Israel relocate to India to run their startups.”

When asked if Delhi NCR will become the biggest hub, Entrepreneur, Angel Investor and GSF Founder, Rajesh Sawhney said “I guess NCR/Gurgaon hub comes second to only Bangalore/Koramangala in the country. These two hubs stand head and shoulder ahead of other hubs not just in terms of startup formation and activity, but also for being the home base for large tech companies. Bangalore and NCR are beginning to feel like twin powerhouses of startup ecosystem in India.”

As India’s headquarters for financial services, Mumbai always enjoys the advantage when it comes to businesses and entrepreneurs. But its dream of becoming a global financial center on the lines of Dubai and Singapore is marred by its inefficient public infrastructure.

Adding to that is its abnormally high real estate price, which is highest in India, and high talent cost due to which, it has lost many young companies to Bengaluru. Moreover, it records one of the highest losses of man hours or productivity due to endless traffic and inefficient public transport.

We all know Chennai is the Detroit of India for its automotive capability. However, there is more to the city’s profile. Chennai, whose businesses are known for maintaining a low profile, is fast turning into a Software as a Service (SaaS) hub. A number of big and small B2B SaaS product companies like ZOHO,Freshdesk, Unmetric and InterviewStreet have become Chennai’s pride in domestic as well as global market. Chennai also host VC like VenturEast, TVS Capital, Peepul Capital, Fulcrum Venture and many more.

Moreover according to a LinkedIn report in June last year that studied 300 million member profiles, the city attracted 38% of new tech talent, significantly higher than the 31% by the Silicon Valley. However, it stood behind Bengaluru that attracted 44% talent followed by 43% each by Pune and Hyderabad. Chennai is assumed of lacking the culture of risk taking, its people have ambition but that ambition is not big enough like entrepreneurs based in Delhi and Bengaluru.

Moreover the ecosystem is yet to evolve in terms of the investor community before it ranks at par with the top three cities. For instance, Chennai only has around 50 angel investors while Bengaluru leads with more than 220 and Mumbai with 210 angel investors.

Technology has been the centerpiece for Hyderabad, much like Bengaluru but it took a blow when Telangana was carved out from erstwhile Andhra Pradesh (AP), leaving the future uncertain for several businesses. In fact around 1,000 SMEs moved out from Hyderabad that had their manufacturing units located in AP but had offices in Hyderabad.

However, the city takes pride in being home to global companies like Facebook and Microsoft, which has its main campus in Hyderabad.

Even though tech ecosystem has existed in Hyderabad for the past many years, the city is yet to come up with significant startup success story. However, companies like genomics startup Mapmygenome, growth-hacking toolkit for app developers AppVirality, and mobile commerce platform MartMobi are rapidly growing in the city. This city host VC’s like SRI Capital, Venture, SEAF India, BitChemy Ventures and many more.

The city has educated and globally travelled young professionals along with good physical infrastructure and overall cheaper cost of living, a necessary factor for start-ups to breed.

Which city is the best place to startup in India according to you? Share your views in the comment section below.

Disclaimer: A special thanks to Peesh Venture Capital for sharing the investment data and helping in the production of this post.

It’s an interesting article where the shift of young entrepreneurs towards setting g their own b2b business is on a boom in India. But other developing countries like Ireland Vietnam Cambodia and Latin America was also coming up in a big way for new starts up and development as the scope are more in place there.